This paper explores how climate change and the transition to a low-carbon economy pose new systemic financial risks (so-called Green Swans), and the role of central banks in addressing them within their financial stability mandate. It does so by developing a three-layered analytical framework that central banks could use to shape their climate-related monetary and financial policies. First, central banks have already started to revisit their backward-looking risk models for the purpose of integrating forward-looking climate-related risks. Second, given the limitations of existing climate-economy models in a context of radical uncertainty, we argue that future climate scenario analysis should rely on systems-based approaches such as non-equilibrium models and more qualitative tools such as those provided by a socio-technical perspective. However, even these new approaches will not suffice from the perspective of financial stability: climate-related risks will remain largely unhedgeable as long as a system-wide and structural transformation is not undertaken, including an unprecedented level of cooperation between central banks, fiscal authorities, the private and public sectors at large, civil society, and the international community. Third, and as a result of the first two points, embracing climate-related uncertainty means that central banks play a new role: helping to coordinate the policies needed to fight climate change, so as to fulfil their own mandate of financial stability. To this end, we make a few specific policy proposals. Key policy insights:. Central banks' traditional risk models do not enable them to identify climaterelated systemic risks (Green Swans). . Adopting new forward-looking and non-equilibrium modelling approaches is necessary to better appreciate the nature of climate-related risks, but it is not sufficient. . To continue fulfilling their mandate of financial stability over longer time horizons than those traditionally considered, central banks must also get involved in policy coordination to mitigate climate change. . This includes exploring which policy mixes (fiscal-monetary-prudential) can better address the climate imperatives ahead; considering climate stability as a global public good to be supported through reforms of the international monetary and financial system; and systematizing the integration of long-term sustainability criteria in both private and public sectors.

This paper discusses the scope for international macroprudential policy coordination in a financially integrated world economy. It begins with a review of the transmission channels associated with, and the empirical evidence on, financial spillovers and spillbacks. Limitations of the existing literature are also identified. The potential gains associated with cross-border macroprudential coordination, dwelling on both recent analytical contributions and quantitative studies based on multi-country models with financial frictions, are then evaluated. The issue of whether coordination of macroprudential policies simultaneously requires some degree of monetary policy coordination is also discussed. The analysis focuses on the potential for policy coordination between major advanced economies and a group identified as systemically-important middle-income countries (SMICs). Next, practical ways to promote international macroprudential policy coordination are considered. Following a discussion of Basel III’s Principle of reciprocity and ways to improve it, the paper advocates a further strengthening of the current statistical, empirical and analytical work conducted by international financial institutions to evaluate, and raise awareness of, the gains from international coordination of macroprudential policies.

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Le changement climatique pose de nouveaux risques systémiques, qu’on appelle des « Cygnes Verts », auxquels les banques centrales doivent désormais faire face dans le cadre de leur mandat de stabilité financière. Les risques climatiques (physiques et de transition) demandent cependant de composer avec une incertitude radicale et des menaces potentiellement existentielles, ainsi que de penser une transformation structurelle vers une économie sobre en carbone. Dans ce contexte, l’action des banques centrales doit être pensée à travers de nouvelles approches et dans le cadre de ses interactions avec d’autres mesures d’ordre fiscal, budgétaire, réglementaire ou encore comptable. Une telle coordination devient essentielle pour faire face à une nouvelle typologie de risques écologiques qui incluent mais dépassent le changement climatique.

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